-4-
3. Petitioners' Share of the Discharge of Indebtedness
Income
Petitioners' pro rata share, as one-third shareholders in
Mikama, of Dove Canyon's discharge of indebtedness income was
$678,170 for 1992 and $396,257 for 1993. Petitioners' allocable
share of the Mikama loss was $228,330 for 1993, $50,091 for 1994,
and $623 for 1995.
4. Petitioners' Basis in Mikama
Petitioners increased their basis in Mikama by the amount of
their discharge of indebtedness income and claimed losses from
Mikama of $228,330 in 1993, $5,032 in 1994, and $623 in 1995.
Petitioners also carried over losses of $368,188 to 1994 and
$269,101 to 1995. Petitioners' basis in Mikama, without taking
into account the discharge of indebtedness income, was $357 on
December 31, 1993, $537 on December 31, 1994, and $6 on December
31, 1995.
The parties agree that, if petitioners may not increase
their basis in Mikama by their share of the Dove Canyon discharge
of indebtedness income, petitioners' deficiencies in income tax
are $4,204 for 1993, $16,571 for 1994, and $12,437 for 1995. The
parties also agree that if petitioners prevail and as a result
may increase their basis in Mikama by the discharge of
indebtedness income, no deficiencies in income tax are due from
petitioners for 1993, 1994, and 1995.
Discussion
In Nelson v. Commissioner, supra, we held that a shareholder
of an insolvent S corporation may not increase his or her basis
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